IABA D.C. Speaks

A call to dialogue: What is the role of law in integrating the informal sector into the formal economy?

By: IABA-DC

February 21, 2017

On February 17, 2017 the D.C. Chapter of the Inter-American Bar Association hosted a productive exchange of ideas on the draft OAS Model Law for a Simplified Corporation. Jeannette Tremhel, Senior Legal Officer in the OAS Department of International Law, highlighted that the Model Law is grounded in the desire to provide legal tools that reduce the barriers to entry for informal sector enterprises in Latin America to integrate into the formal economy. While Latin America is remarkably diverse, a common thread is the entrepreneurial spirit of the region’s people. The hope is that by formalizing this dynamic unrecognized economic activity, countries in the region will be able to translate its people’s entrepreneurialism into clear long-term benefits to communities.

The means by which the Model Law achieves its goal is by providing a framework for national legislatures to draw from as they develop domestic laws that make it desirable for small informal enterprises to register and gain access to the benefits of the formal economy. Just a few of these benefits include: access to credit that allows small companies to grow or survive unexpected events, access to formal dispute resolution, social security benefits for employees, and a greater tax base that allow governments to provide more robust services to citizens. The Model Law is currently being finalized and will be considered by the OAS’ political body shortly. The IABA-DC event was helpful in providing stakeholder feedback to the proposed Model Law.

IABA-DC event attendees raised various points for discussion as the Model Law is finalized. These issues included understanding the implications that the Model Law would have on the concept of piercing the corporate veil, clarifying and limiting the role of notaries in the incorporation process as well as in the lifetime of the corporation, and emphasizing the need to make sure that adequate review of arbitral decisions is assured.

It is imperative that the conversation continues. Not only to make sure the Model Law is most helpful to countries in the region, but also to ensure that countries that draw on the Model Law give adequate consideration to the complexities associated with the concepts it introduces.

No country will be enacting a law based on the proposed Model Law on a blank slate. In some countries in the region, for example, internet access is readily available and populations have embraced mobile devices as a primary means of accessing the Internet. In such countries mobile banking, online registration, and online education may be readily accessible. Other countries, however, where similar infrastructure is not as readily available, will have to consider how the Model Law can be tailored to the specific needs of its informal sector. What good is formalization that brings legal access to credit if you can’t get to the bank?

These are critical questions for the region and, of course, a Model Law cannot possibly address all of these issues. What it can do, however, is provide a flexible legal framework that draws on successful models in the region to provide guidance on what might work in a particular context. Getting the framework right requires ongoing dialog. Getting the implementation right at the country level requires even more dialog. IABA-DC was proud to have been a part of the conversation on February 17, 2017. We will continue to be a part of that conversation in our upcoming events, as well as through publications on our website.

We encourage you to join the conversation by sending us your thoughts on our Contact Us page. If you have a view on how the OAS proposed Model Law can help integrate informal enterprises into the formal economy, please leave us a comment. Lend your voice so that we can share new perspectives with the OAS as they draft this important Model Law.

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